I spent nearly 30 years at MIT as a student and then researcher at the Energy Laboratory and Center for International Studies. I then spent several years at what is now IHS Global Insight and was chief energy economist. Currently, I am president of Strategic Energy and Economic Research, Inc., and I lecture MBA students at Vienna University. I've been president of the US Association for Energy Economics, I serve on the editorial boards of three publications, and I've had my writing translated into six languages.

Peak Oil 3: Has Production Peaked?

The remnants of the peak oil community cling avidly to the belief that oil production has already peaked and that high prices prove this. “Look at the data” seems to have become a catechism amongst them, and it can be hard to dissuade them otherwise, especially by considering more than one variable as explaining oil supply and price.

Most anyone can understand that high oil prices are no more an indicator of resource scarcity than the occasional spike in coffee, pork or orange juice prices. Things happen that can cause prices to rise for a period before supply and demand can re-equilibrate, with oil particularly vulnerable to political disruptions–witness developments in Iraq, Iran, Libya, Nigeria to name the primary ones.

The funny thing is that high prices in the late 1970s were also considered evidence that “the oil and gas we rely on are simply running out,” as a president said. The vast majority of the expert community believed prices would continue rising in the 1980s and 1990s because “oil was different” and the drop in 1986 to long-term mean prices came as quite a shock to nearly everyone. (M. A. Adelman was a notable exception.)

Because of that, in part, most experts did not rush to attribute the higher prices post-2002 to resource scarcity, instead of to above-ground problems such as the invasion/liberation of Iraq and the strike and mass firings at Petroleos de Venezuela. Higher costs certainly suggest to some that “the cheap oil is gone” but many others, such as myself, consider them cyclically inflated, rather than reflecting exhaustion of the so-called “easy oil”.

The second problem with the claims of a production peak are that they usually are confined to crude and condensate, rather than total petroleum liquids, which includes natural gas liquids like propane and biofuels like ethanol. While total liquids production has increased by 5.7 mb/d since May 2005 (the putative peak), crude and condensate have “only” grown by 2.4 mb/d.

But wait, there’s more! Peak oil advocates insist that only conventional oil should be considered because, well, no one’s every really explained why it matters. Excluding shale oil production does, indeed, make it appear as if “oil” production may have peaked in May 2005, but what’s the point? If you only looked at onshore production, you might conclude oil had peaked in 1970; or only looking at oil produced by private companies, production peaked in the mid-1970s; and you could probably exclude oil produced by guys named Dave and come up with a different number, and one just as meaningful.

Oil comes in a wide variety of qualities and types, but petroleum products like gasoline and jet fuel are relatively homogenous because refineries make them so. They use a mix of crude oil, conventional and otherwise, plus other liquids, including natural gas liquids and biofuels, to generate a final product. This is why, aside from peak oil advocates, almost no attention is paid to production trends for the subcategory “conventional” oil or “crude plus condensate”.

But the final error in these claims is the most symptomatic of the flawed “peak oil” school of thought, namely, the fact that they are simply extrapolating or curve-fitting. Price, taxes, politics, and technology are all largely ignored in their influence on production trends, implicitly so when they argue that production once peaked cannot recover. This ignores not only the fact that production has peaked before and recovered, at the national and global level, but the odd coincident that the slow production periods tend to coincide with periods of weak economic growth, like the early 1980s or the Depression or–ta da–post 2008!

So to all those who say, “look at the data” if you don’t believe oil production has already peaked, I would advise them to look at the data more carefully.

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No one worries about running out of tomatoes. We may have market scarcity from time to time due to weather, shipping problems or many other factors. But in the long run, if we need more tomatoes, we plant more tomatoes.

Then next year we have more tomatoes.

So, where are you planting petroleum?

Just as I thought. Nobody has planted any.

Even if they had………………………..it would be a VERY VERY long time before there is any petroleum ready to be harvested.

And, as you showed in the graph in Peak Oil 1 – discoveries from exploration peaked in the 1960′s and have declined each decade since. Does that not demonstrate that oil is not “effectively infinite” as some economists have postulated?

That graph is one of the problems: ‘discoveries’ actually means ‘currently estimated discoveries’. Thus, the amount of oil discovered shown is underestimated. Reserves have not declined because of upward revisions to field size.

It is hard to try to pull off the argument from silence when there is not actually silence.

The staggering importance of the shift to unconventional oil is explained very simply by an investor and oil company insider in this talk, using industry figures: https://www.youtube.com/watch?v=dLCsMRr7hAg

I’m not saying your line of reasoning is indefensible, but you simply refused to hear the arguments of the opposing side. I don’t think you listened very hard.

I don’t think you read the journal article I posted last week either. In case you couldn’t find it, here is a link to a free open access copy: http://www.sciencedirect.com/science/article/pii/S0360544213009420

Quote: “Commercial-scale economic production of refineable liquids from [shale] do not exist at this time, and probably will not until the aforementioned issues are addressed effectively [41] and [42]. The EIA does not forecast more than 0.4 Mbbl/day of production from these resources before 2035 [38].”

Why exclude NGLs, heavy oil and shale oil? I read the Hallock et. al. and it is not very useful. It is not a model but a calculation: assume a production trend and a total production amount, and that “peak” occurs at 50% depletion and you will get a year and level for peak. No price, no technology, etc. Since what they call EUR is not a fixed point, the model gives lousy results. (Note: saying that they have matched ‘actual’ behavior for 11 years is not persuasive to people who do real statistical modeling.) You might also note that, as novices, they have mistaken kerogen resources for shale oil, (re: your quote) they have missed an enormous factor.

“Most anyone can understand that high oil prices are no more an indicator of resource scarcity than the occasional spike in coffee, pork or orange juice prices.”

Comparing the current rise in oil prices to an occasional spike in agricultural would seem more apt if the price rise looked like a “spike”. There is a horrific spike that could be pointed to in 2008 and a subsequent collapse as the Great Recession hit, but eliminating 2008, in the others years between 2002 to 2014, one is left with a large rise, followed by a plateau. Or you could call it an “undulating plateau” to steal the term Daniel Yergin uses for his long-term expectations on future oil production.

“Higher costs certainly suggest to some that “the cheap oil is gone” but many others, such as myself, consider them cyclically inflated, rather than reflecting exhaustion of the so-called “easy oil”.

If we were to return to the oil prices of 1986 to 2004, fracking projects would have to shut down.

If we look at 1973 to 1985, there was a big price rise and then prices ultimately went even lower (adjusted for inflation) than 1973. So using that as an example, we could theoretically go down in price to or lower than where we were in 2002. However, absent a Cantarell, North Sea and Alaska North Slope, that seems impossible. And you have to also add 2.5 billion Chindians who were gifted OECD jobs and are looking to motorize.

The costs of fracking should be known by the companies doing it. Are they not revealing it or is it not determinable from their financial reports?

It is on record that conventional oil peaked in 2005 according to Steven Kopits, of oil field services consulting firm Douglas-Westwood, not including tar sands or tight oil. There is no reliable and authentic evidence that unconventional oil will make up for the loss in production of conventional oil. There are actually reports that unconventional oil/gas production drops quickly after reaching highs. Even if unconventional oil lasts and makes up for the loss in conventional oil, there is the problem of green house gases with this type of oil and the high requirement of water. We are already on the brink of water wars. It is prudent not to treat the above observations as pin pricks but to prepare for the worst scenario and speed up effort for substitution of fossil fuels. Relating the need to substitute fossil fuels only to its price is, to put it mildly, misleading the public.

Kopits’ is a minority opinion. Costs, water use, and energy needs are challenges, but I know of no reason they can’t be overcome. There have been many other such ‘pin pricks’ primarily by neo-Malthusians, who have been known to wish for plagues to kill off the ‘excess’ population. That has not proved prudent.